Course 207: Investing in Your Company's Stock
How Much Is Too Much?
In this course
1 Introduction
2 When Loyalty Goes Too Far
3 How Much Do You Own?
4 How Much Is Too Much?
5 What If I Have Too Much?

Experts disagree on what the "proper" amount of company stock is. Some will say you should never own any of your company's stock at all. Others will tell you to limit your company-stock stake to no more than 30% of your portfolio.

While every investor's case is different, we prefer moderation. In general, no more than 10% of your portfolio should be in your company's stock, especially if your goal is less than five years away. If that one stock has a bad streak right before you need the money, you may not be able to reach your goal.

Let's take an example. Say you want to retire at age 62 with a $1,250,000 portfolio. You figure you can live on $50,000 a year from that nest egg. Five years before you retire, you have 10% of that portfolio (or $85,000) invested in your company's stock and 90% (or $765,000) in a well-balanced portfolio of stocks and bonds that you expect to grow at about 8% per year.

Then say the company stock tanks, losing 20% each year for five straight years. Your $85,000 investment in company stock drops to $27,850. At the end of five years, your portfolio is worth $1,151,850--not quite what you need, but not bad. If you had 30% of your portfolio in company stock, however, you might need to work an additional three years to make up those lost dollars.

Of course, there is always a chance your company stock will do better than a balanced portfolio. If that happens, having 30% of your portfolio in the stock might allow you to retire a few years early. Remember, limiting your exposure to company stock is a defensive measure for your portfolio

Next: What If I Have Too Much? >>


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